Weekly Review; Friday, January 25th, 2019
MaxYield Cooperative - SETZ - Fri Jan 25, 8:42AM CST

Continued Optimism with China

On Friday, January 18th, buying interest continued for grains as more indications that China looks to work out the trade imbalance with the U.S. Grains initially look to be the benefactor as sources indicate China has offered a 6-year deal to buy 1 trillion dollars of U.S. commodities and other goods. Intellectual property rights are still a major issue for both parties. The U.S. Treasury Secretary has proposed lifting some of the U.S. tariffs in a good will effort to help negotiate the intellectual property issues.

Export inspections for corn and soybeans came right in line with trade estimates for the week ending January 17th. Corn inspected for export came in at 43.6 million bushels compared to trade estimate range of 35-43 million bushels. Soybeans inspected came in at 40.8 million bushels compared to the trade estimated range of 31-48 million bushels. Corn needs to average 51.2 million bushels per week and soybeans need 37 million bushels per week to hit the forecasted USDA export number.

China’s 2018 economy saw the slowest growth in 28 years. On Monday, the Chinese government announced the official GDP growth in 2018 was 6.6%. However, 6.6% growth on the year is still a very significant number as it is still nearly double of the global average. Many believe and attribute the slow pace of growth a consequence of the trade war with the U.S. Private banking officials have said that tax cuts will help stabilize their economy in 2019.

Grains sold off late in Tuesday’s session on an announcement that the U.S. rejected a meeting with the Chinese vice minister of commerce and vice minister of finance. The two Chinese officials had planned a trip to the U.S. later this week, but U.S. officials declined to meet. The current administration cited lack of progress on two key issues, forced technology transfer and structural reforms on China’s economy. The potential to reach an agreement by March 1st looks to be overly optimistic by many in the trade at this point.

Informa released their acreage update on Wednesday. They are predicting the U.S. will see 2.36 million acre increase in corn acres totaling 91.5 million acres for the upcoming 2019-crop year. Informa expects a 2.94 million-acreage decrease from 2018 coming in at 86.2 million acres. Informa’s yield estimate is relatively unchanged with corn at 178.2 bpa, 6 tenths of a bushel below last year. Soybeans on Informa’s balance sheet show a reduction of 4 tenths of a bushel from last year, with a yield estimate of 51.2 bpa.

Estimates with the earlier harvest this year in Brazil are showing farmers have harvested 2.2 MMT more soybeans this year than last. As expected, these early soybeans are finding their way to the export terminals and destined for China, with rumors of Chinese buyers purchasing 25-30 cargoes of Brazilian soybeans.

The high demand for trucks and the higher freight rates continue to be a big factor in increasing the costs of soybean harvest in Brazil. Sixty percent of the products in Brazil, are currently transported by truck. Transportation of commodities could be changing in the next few years, as the country plans to build new roads and 710 miles of new and expanded railways in the highly productive region of Mato Grosso to a river barge terminal. This would potentially reduce the cost of Brazilian commodities due to lower transportation costs.

After all costs, including tariffs, it’s still estimated that US soybeans into China cost roughly $14.50 per bushel, while Brazilian supplies are estimated around $11.50 per bushel. This price gap has widened in favor of Brazil since positive discussions between U.S. and China last month put pressure on basis values in that country. If the 25% tariffs were lifted, the value of U.S. soybeans would become $2.75 cheaper to Chinese buyers. While that is obviously beneficial to the U.S., export economics will still favor Brazil. U.S. values look more competitively priced with Brazilian soybeans in the late summer delivery months.

Ethanol production for the week ending January 18th showed a decrease of 20,000 barrels per day at 1.031 million barrels per day. Negative margins are still a concern as the industry continues to look for new demand. Ethanol stocks showed an increase of 150,000 barrels to bring it to 23.501 million barrels, the largest supply since mid-December.

The USDA reopened all offices on January 24th and will provide the majority of services. The USDA has recalled 9700 employees back to work for the first two-week period of the operating plan and offices will be open Monday through Friday. After February 8th, if the government shutdown has not been resolved, offices will be open on Tuesday through Thursday. The Market Facilitation Program deadline has been extended to February 14th. Producers can check the USDA’s website about procedures during the shutdown at www.fsa.usda.gov/help/shutdowninfo.

For more information, you may contact Kristi Guse at (712)-260-6486, or e-mail at kguse@maxyieldgrain.com. The opinions and views expressed in this commentary are solely those of Kristi Guse. Data used in writing this commentary obtained from various sources believed to be accurate. This commentary is intended for informational purposes only and is not intended for developing specific commodity trading strategies. Any and all risk involved with commodity trading should be determined before establishing a futures position. Please visit our Risk Disclosure Page for more information on commodity trading.


Market Commentary provided by:

Karl Setzer Grain Commentary